Charity Navigator Model - Out of the Frying Pan?

David Gilchrist.

The Federal Social Services Minister Kevin Andrew's announcement that a Charity Navigator Model may replace the ACNC is something the charitable and Not for Profit Sector should consider deeply, writes David Gilchrist, the Director of the Not-for-profit Initiative at WA’s Curtin University.

The Sector had a number of concerns with regard to the collection of data as required under the legislation that established the Australian Charities and Not-for-profit Commission (ACNC).

Chief among these concerns was the increase in administrative burden and the development of informal league tables (the ACNC and the government never intended to develop league tables in any formal sense).

The Charity Navigator Model is a league table system, which establishes lists of Charities and reports that purport to make judgements about which Charities are operated efficiently and effectively and which ones are not.

This type of exercise is dangerous for our Sector because the judgements are made at a superficial level, do not consider the context in which Charities operate and make the judgements based on the compiler's definition of what is efficient and effective.

People will use these judgements to make financial allocation decisions, volunteering and other decisions and each Charity's reputation will be at risk, leading to game playing in order to manage the risk rather than focus on the Charitable activity.

Additionally, in the case of the US model, the information is collected via the lodging of tax returns each year by Charities. In order to create its reports, a Charity Navigator model must collect data.

It must be collected in a uniform way (for instance, General Purpose Financial Statements might be the set standard for financial reporting) and little credence is given to the commentary that is currently able to be included in the ACNC Annual Information Statement – commentary that is critical to people understanding the context within which to interpret the quantitative data.

Red tape reduction is a major reason put forward for the dismantling of the ACNC and yet this idea certainly will not decrease it but may, in fact, increase it.

The questions the Sector has to ask is, what benefit is created out of this idea, what are the risks, and why would we replace the current arrangements with this type of framework? Ultimately. what benefit will flow to the recipients and beneficiaries of the Sector?

About the Author: David Gilchrist is an historian and accountant. He has held a number of senior roles in the Not for Profit and public sectors and, most recently, was Assistant Auditor General, Standards and Quality in Western Australia. Early in 2011, David was appointed to the position of Industry Professor within the School of Accounting at Curtin University where he researches in the areas of government and Not for profit performance, regulation, governance, financial reporting and economic history.